Current Price: $409 Price Target: $450 (raising from $414)
Position size: 7.1% TTM Performance: +92%
Key Takeaways:
· Apple reported very impressive Q3 results. They beat the highest estimates, w/ Q3 revenue up 11% (including a 300bps headwind from currency). Revenue hit $59.7B vs street at $52.2B. EPS $2.58 vs street $2.07.
· Broad beat – better than expected revenues across all products, including a surge in iPad and Mac sales and a return to growth w/ iPhones..
· They saw meaningfully improved sales in May and June which they partly attribute to the stimulus.
· No specific guidance for Q4 but they did say they expect a continuation of recent performance w/ iPhone and services categories, with some headwinds from AppleCare. Also iPhone 12 release delayed a few weeks
· Announced 4-1 stock split at the end of Aug.
Additional Highlights:
· Both products and services set June quarter records and grew double-digits and revenue grew in each of their geographic segments.
· Installed base of active devices reached an all-time high across each product category.
· Transition to Apple silicon for the Mac – “this two year effort will achieve both unprecedented performance for the Mac and a common architecture across all Apple products.”
· Gross margin was 38%, down 40 bps sequentially due to unfavorable FX of 90 bps
· Affordability – This continues to be a growing focus as a way to grow their installed base. They just launched the iPhone SE @ $399. In June, they launched Apple Card Monthly Installments for more products in their US stores allowing customers to pay for their devices all the time with 0% interest.
· Segment results – Mac and iPad were standouts
o Mac ($7.1B, +22%) & iPad ($6.6B, +31%)
§ As they said last quarter, they expected iPad and Mac growth to accelerate in Q3 – incredible growth driven by increased WFH. This remarkable performance came in spite of supply constraints on both products.
§ Mac grew double digits in each geographic segment and set all-time revenue records in Japan and rest of Asia-Pacific as well as June quarter records in the Americas and Europe.
§ Customer response to new MacBook Air, MacBook Pro, and iPad Pro launches has been extremely strong.
§ Half of the customers purchasing Macs and iPads around the world during the quarter were new to that product and the active installed base for both Mac and iPad reached a new all-time high.
o iPhone ($26.4B, +2% YoY)
§ iPhone returned to growth. Customer demand improved as the quarter progressed.
§ In April, they said they expected YoY performance to worsen, but they saw better-than-expected demand in May and June. They attributed this increase in demand a strong iPhone SE launch and continued economic stimulus.
§ Strong response to SE, but iPhone 11 continues to be their most popular phone.
§ Active installed base of iPhones has reached an all-time high.
o Services ($13.2B, +15% YoY)
§ Hit milestone set in 2016 of doubling this business in 2020.
§ All-time revenue records in the App Store, Apple Music, video and cloud services as well as elevated engagement on iMessage, Siri and FaceTime.
§ Strong double-digit growth in the App Store, Apple Music, video and cloud services.
§ Results for advertising and AppleCare were impacted by the reduced level of economic activity and store closures – in line with their expectations.
§ Growing customer engagement in their ecosystem – the number of both transacting and paid accounts on their digital content stores reached a new all-time high during the June quarter with paid accounts increasing double-digits in each geographic segment.
§ Paid subs grew by 35m sequentially to 550m. Goal of 600m by year end.
o Wearables, Home and Accessories ($6.5B, +17%)
§ Wearables growth decelerated as we expected, but still grew by strong double-digits and set a revenue record for a non-holiday quarter.
§ Now the size of a Fortune 140 company
§ >75% of Apple Watch purchasers were new to the product
· Valuation:
o Trading at a >4% FCF yield. Higher than the S&P. Apple’s FCF generation is about the same as the other FAANGs combined.
o Ended the quarter with net cash of $81B ($194B in cash and debt of $113B) or about 5% of their market cap.
o Returned $21B to shareholders during the March quarter, including $3.7B in dividends.
o Maintaining target of reaching a net cash neutral position over time.
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
$AAPL.US
[category earnings]
[tag AAPL]